Frac Spread: Butane Up But Waters Still Troubled

Ethane prices dropped to their lowest points in almost two months as Hurricane Harvey forced closure of 16 Gulf Coast ethylene plants that account for 59% of U.S. capacity.

Propane and butane, however, hit seven-month highs at both the Mont Belvieu, Texas, and Conway, Kan., hubs, as did the hypothetical NGL barrel at Mont Belvieu.

The sector is in recovery mode, with Enterprise Products Partners LP (NYSE: EPD) announcing on Sept. 5 that virtually all of its major assets were back in service following the massive flooding that Harvey inflicted on the Gulf Coast region. The Mont Belvieu complex alone experienced 51 inches of rain.

How long will this recovery take? A cracker restart typically takes about two weeks, assuming no major damage, said ICIS Senior Consultant James Ray in a report. But Harvey bombarded Texas and Louisiana with 27 trillion gallons of water over six days, reported WeatherBELL Analytics, leaving descriptors like “catastrophic” in the rear-view mirror.

Then there is the specter of Tropical Storm Katia in the southwestern Gulf of Mexico, Hurricane Irma threatening to swallow Florida whole and, lurking over the horizon, Tropical Storm Jose expected to develop into a hurricane and wreak havoc with Atlantic shipping. If there is a bridge over these troubled waters, it’s not one you want to be crossing in the next week or so.

Bright spot? This from IHS Markit: “As of September 6, NGL operations affected by the storm at Mont Belvieu, Texas, the Permian Basin, and South Texas are returning to normal quickly.”

The recently concluded month of August showed the price of the Mont Belvieu NGL barrel up 41.6% over the same month in 2016. The Conway barrel was 47.5% higher. Compared to two years ago in August 2015, Mont Belvieu’s barrel is 56.3% higher and Conway’s is 63.7% higher.

While sidelined ethylene plants dampened demand for ethane, anticipated refinery demand for butane for the switch to winter-grade gasoline boosted recent prices at both hubs. Mont Belvieu butane is 53.5% higher than during the same period in 2016 and Conway’s price was 67.2% higher.

Storage of natural gas in the Lower 48 increased by 65 billion cubic feet (Bcf) in the week ended Sept. 1, the U.S. Energy Information Administration reported, above the Bloomberg consensus of 63 Bcf and the 2016 increase of 38 Bcf. It is also above the five-year average of 58 Bcf and resulted in a total of 3.22 Tcf. The figure is 6.2% below the 3.432 Tcf figure at the same time in 2016 and 0.5% above the five-year average of 3.205 Tcf.